Look for 660-690 as Major a Reversal Area on S&P 500

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The chart above is SPY. The light blue, green, and pink lines are the 127.2% and 141.4% retracements of the March-May, October, and Nov-Jan bear market rallies. Without going into a lot of detail and history here, these two levels seem to be the most common reversal levels for the next intermediate low once a new bear market low is made. There are three main scenarios that occur:

1. double bottom where the prices are almost the same
2. a temporary bottom at the 127.2 to 141.4% retracement of the most recent rally
3. a leg down much larger than the previous rally and really should be compared to the other legs down rather than the previous rally (even these legs down often run into short-term support at the 127.2-141.4% levels, example Sept of 2008)

Since the current leg down did not make a successful double bottom, I think the probabilities are good that this leg down will end around the 690-660 levels on the S&P 500 which correspond to the 127.2 and 141.4% retracements of the Nov-Jan bear market rally.

Because that is still, say, 2-6% below current levels as of today's close, I think maintaining the current buy limit order for QLD at 19.72 is a good strategy for the next couple days.

There are virtually no indicators suggesting a bearish bias at this point, even for the intermediate term (next few weeks), so it only makes sense to go for a bullish trade right now. Also I had mentioned that the put/call ratios were terribly low last week for the position the market was in. Sentimentrader.com did some further analysis of the data and found that part of the reason for the low ratios was a HUGE amount of call options being traded on news-heavy financials like Citigroup, etc. I guess there are a lot of long shot trades being made in case some news comes out and sends the stock up 100% or so. So, disregarding those options, the ratios probably aren't too horribly low. In any case, there is enough other evidence to justify turning bullish right now for the intermediate term. I would guess we will see a tradable low by Friday.

Pete